Consider the following exchange economy: u (x1, x2) = min{2x1, x2} u³ (x, x2) = min{x, 2x} = (2, 2) B = (2, 2) Let P₁/p2 denote the relative price. Suppose = 1. = (a) Show that both markets clear at this relative price by computing the optimal consumption plan for each consumer and showing that these plans are feasible. [25 marks] (b) What is the associated WEA? How many units are bought and sold on each market? [10 marks] (c) Illustrate this equilibrium in an Edgeworth Box diagram. Your diagram should include the WEA, the budget line, and each con- sumer's indifference curve through the WEA. [15 marks]

Consider the following exchange economy: u (x1, x2) = min{2x1, x2} u³ (x, x2) = min{x, 2x} = (2, 2) B = (2, 2) Let P₁/p2 denote the relative price. Suppose = 1. = (a) Show that both markets clear at this relative price by computing the optimal consumption plan for each consumer and showing that these plans are feasible. [25 marks] (b) What is the associated WEA? How many units are bought and sold on each market? [10 marks] (c) Illustrate this equilibrium in an Edgeworth Box diagram. Your diagram should include the WEA, the budget line, and each con- sumer's indifference curve through the WEA. [15 marks]

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 6P

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